How to evolve SaaS Pricing with Azure unit economics intelligence

To gauge the health of cost efficiency in your SaaS business, it’s crucial to track unit cost data. If you have already used Turbo360, you would have already started noticing valuable insights such as cost per customer and cost per product or feature.

In the SaaS industry, it is common to observe that some customer segments are significantly more expensive to support than others. This situation is common as certain customers will be power users of your platform, consuming the majority of your cloud infrastructure resources. Also, these users may barely match or even undermine the ROI you achieve from them.

Over time, this can negatively impact your most profitable customers, who could be SMBs, as you need to offset the higher costs incurred by power users by raising prices for everyone. This could lead to customer dissatisfaction and increased churn as customers may find your competitors offering better pricing.

This scenario raises an important question among the leaders in SaaS business:

1. How can you address this issue?
2. What strategies can you implement to better align customer costs with your revenue, ensuring your business remains profitable and avoids unnecessary expenses and customer churn?

Top 4 insights you must have access to overcome the challenges

Have access to your unit economics data

To develop effective strategies for your SaaS pricing and to make the renewal contracts customizable for high-usage customers, it’s significant to have access to unit economics data, such as cost per customer and cost per feature. Here are some steps to get started:

1. Analyze costs of specific customers by geographic region, business size and industry

2. If you have a customer base of thousands, it is a good idea to monitor costs for each customer separately.

3. Check which customers and segments have healthy margins.
4. Determine what is causing the unexpected costs to arise, such as API usage, data usage, and storage. With that data, identify if specific products or features drive these high costs.

5. By comparing customers and segments, prioritise the ones that need immediate attention.

By understanding your customer costs in depth, you’ll be better equipped to decide on necessary actions in various areas.

Balance Your Packaging and Pricing Tiers

SaaS companies usually create their initial pricing tiers based on the simplest services to sell. Advanced customers might choose more complex packages, but the lower tiers are generally targeted at quick sales for those ready to begin immediately. These pricing choices are often made before launching a new product or feature, making it difficult to predict margins for various packages accurately. Reassessing your packaging and pricing strategies can be a good starting point for achieving significant cost improvements.

1. Monetize Easily: Identify which products and features are easiest to monetize and use these to guide customers toward the packages that best match their needs.

2. Balance Margins Across Tiers: Aim to balance each tier so that margins remain consistent between packages. Take informed decisions with unit economics data to correctly package your pricing.

3. Optimize Sales Strategy: If your high-end service generates significantly more revenue than your low-end services, ensure that your low tiers sell frequently enough to be worthwhile and that your high tiers are attractive enough to encourage maximum sales.

The goal is to structure your pricing tiers to maximize customer value while maintaining healthy margins, regardless of the customer’s choice.

Customize the Sales strategy of Certain Customer Segments

If your largest enterprise customers are the power users and draining most of the infra resources, it might be time to define a specific sales strategy for these customers from the other SMB customers.

These are possible strategies you could implement:

1. Guide your power users to the pricing tier that ensures cost recovery.

2. Redesign the most used feature with smart technology to make it more cost efficient.

3. Navigate these users’ resources to the efficient pricing tier of your cloud infrastructure, allowing you to customize their usage and pricing.

These techniques can be applied to almost any customer segment, not just enterprise customers. For example, if small businesses in the greater Chicago area are affecting your profits, consider making special exceptions for this demographic.

Optimize Your Terms for Every Renewal

Having detailed knowledge of your customer costs is like having a superpower when it comes to contract renewals.

When you acquire a new customer, you make an educated guess about their costs and the revenue they will generate. However, these initial estimates can often be inaccurate.

By knowing exactly what a customer costs your business and the revenue they bring, you’ll be in a strong position to negotiate better deals during renewals. You’ll understand your boundaries and can calculate how compromises will subside your Return on Investment or benefits.

This precise understanding certainly helps you to customize a renewal contract that would ensure profitable margins from these customers. It will be particularly useful when your competitors tend to attract your customer with lower pricing. You can offer a tailored discount with the intelligent unit economics data like cost per customer without risking your margins.

Conversely, you can guide your revenue teams on where tough renewal conversations are necessary. If a customer is costing you money or providing only a razor-thin margin, knowing this ahead of a renewal equips your team with the data needed to negotiate effectively.

How do Turbo360 helps with acquiring unit cost data in Azure?

To implement the above strategies effectively, a sophisticated cost analysis and management mechanism is essential. This will allow you to gain insights such as cost per customer. If you don’t yet have a system to analyze and allocate costs as needed, your first step should be to establish a cost allocation mechanism.

Challenges with Azure cost management in obtaining unit cost intelligence at scale

Azure offers cost management tools that can help you analyze usage and spending. Still, it may not provide detailed unit economics data out of the box in the sense of granular revenue and cost breakdowns on a per-customer or per-team basis. Here is a quick view of the cost management tools available in the Azure portal and its purposes.

Azure Cost Management and Billing

Azure Cost Management (ACM) provides cost analysis and reporting tools to help you understand your Azure spending. It allows you to view and analyze aggregated actual or amortized costs in the deployment model views like subscriptions, resources groups, and even tags for desired time.

You may get unit cost insights in Azure Cost Management, but there are the following restrictions or considerations.

Note: We have a comprehensive comparison of Turbo360 and Azure Cost Management outlining the challenges with ACM.

Cross-Subscriptions and Tenants

Your application or business unit resources mustn’t span across multiple subscriptions and tenants to obtain unit cost insights. ACM’s functionality is optimized for scenarios where cost data is consolidated within a single subscription or tenant.

Manual cost aggregation

While ACM allows you to aggregate costs with custom filters manually, it cannot provide instant unit cost visibility. Though the Azure portal offers an option to save custom graphs as shared views, it comes with the constraint of seeing the data in deployment models like Management Group, Subscriptions, and Resource Group.

Decentralized cost data and access control

Azure Cost Management does not offer a hierarchical view of unit cost data and provides granular access, making it challenging to decentralize cost information to specific teams. The unavailability of granular user access to detailed cost insights impacts the effort of driving accountability within different organizational units.

Accessibility for non-technical teams

The Azure portal, where the Cost Management service is primarily housed, may not be suitable for non-technical teams such as finance, business, and executives due to security concerns and the need for technical expertise to navigate the platform. It hinders efficient cross-team collaboration and informed decision-making.

Manual calculations and data points

Users should be prepared for manual calculations, particularly in scenarios involving thousands of data points. This may require significant bandwidth for users to perform these calculations in Excel sheets and obtain a snapshot of current unit costs.

Turbo360 can assist you in allocating costs to gain valuable insights into the cost per customer, team, or environment. Even if you are new to this, with the support of our account managers and product consultants, you will quickly obtain the desired cost insights.

How does Turbo360 facilitate unit cost generation with automation?

Turbo360 enables the effortless creation of customized views of Azure Cloud Unit Economics. You can organize and analyze costs based on your unique situation by tailoring the categories in a hierarchical tree structure that aligns with your tracking needs — teams, customers, products, features, or any relevant business unit.

Request your free demo or free trail here to discover how you can leverage the best Azure cost management platform.